This Credit Card Alternative Could Reduce Your Interest Rate by 50%

by Neal Frankle, CFP ®

There is a credit card alternative that could reduce your interest rate by 50% or more. Of course the best idea is to get out of credit card debt completely. But at the same time, you need to cut your cost of debt. If you carry high-interest credit card debt, there are options that can save you a great deal of money. One idea is to use a home equity line of credit or refinance, but if you don’t have equity, this won’t work. No worries … there is still an alternative.

Quite simply, the concept is to use peer-to-peer lending with a company like Lending Club to pay off your credit card debt. Of course, you would only do this if the rate at the peer-to-peer company is lower than the rate the credit card is charging you. But with people paying 15+% on credit card debt, it certainly pays to look into this.

How Lending Club works

Peer-to-peer lending is simply a way to connect people who have money with people who need money. The company that does this is a broker. There is no bank in the middle of the transaction so it usually results in lower fees for the borrower.

Who is this arrangement good for?

While I’d never invest money in one these deals – plenty of other people do. I don’t recommend this as an investment for people I work with because I don’t like the lack of security. But if I needed money to pay my 17% credit card interest, I’d be the first one to sign up.

How much interest will you pay?

Of course the rate you pay depends on your credit score. The higher the score, the lower the rate. But even if your credit score isn’t the best, you could still save a ton. In fact, on one P2P lending site, they say the average borrower pays about 7.89% as compared to 12% or more for credit card debt. That 4% savings is huge.

Have you looked into peer-to-peer lending to reduce your interest expenses? What was your experience? Regardless of how you solve the immediate need to pay your debts, you’ve got to get your personal budget plan together so you never run into this issue again. How are you going to do that?

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